Crude Oil ( ) Brent Crude ( ) Natural Gas ( ) S&P 500 ( ) PHLX Oil ( )
Current NTI Stock Info

Purchased First NTI Stake in 2013

Western Refining (ticker: WNR) is attempting to enhance its Midwest footprint, proposing a $2.56 billion buyout deal of Northern Tier Energy LP (ticker: NTI). WNR already owns 100% of the partnership and 38% of NTI shares. The proposal consists of a cash-and-stock offer that includes $17.50 and 0.2266 shares of WNR in exchange for one NTI share, amounting to a premium of 15% relative to Northern Tier’s average 20-day closing price as of October 23, 2015.

Western Refining operates refineries in El Paso, Texas, and Gallup, New Mexico, with retail businesses throughout Arizona, Colorado, New Mexico and Texas. WNR serves as the general partner of its master limited partnership, Western Refining Logistics, LP (ticker: WNRL), of which it has 66% ownership. WNRL entails terminals and storage facilities, in addition to approximately 300 miles of crude oil pipelines. NTI consists of downstream and retail businesses in Minnesota and Wisconsin.

WNR first purchased the 38% stake in NTI back in November 2013, for total consideration of $775 million. The purchase was made just one month after WNRL finalized its initial public offering, resulting in net proceeds of $325 million. The two subsidiaries have provided approximately $208 million in distributions to WNR since their first investments.

WNR reports NTI financials as one of four segments in its quarterly reports, and its Q2’15 operating income of $125.1 million accounted for nearly 40% of WNR’s total. The St. Paul Park Refinery is one of only four in Minnesota and is a major supplier to the Midwest region. For the first six months of 2015, the facility realized gross margins per throughput barrel of $21.39, an increase of nearly 30% compared to the first six months of 2014.

wnr-exposureWNR Reasoning

Jeff Stevens, President and Chief Executive Officer of Western Refining, said the proposed merger would “simplify our corporate structure and create a stronger, more diverse company with enhanced growth opportunities and greater access to capital.”

The two companies have discussed ways to diversity their respective businesses throughout the year, but did not outline general specifics aside from mentioning the collaborations in conference calls. In NTI’s Q2’15 conference call, David Lamp, President and Chief Executive Officer, mentioned the different methods to fuel the company’s future growth. “It’s top on our list to diversify our income stream and geographical concentration,” he said. “However, Western is mainly in the driver seat on that and you’d really have to talk to them about what their plans are.”

NTI Response

Northern Tier Energy issued a news release simultaneously with WNR, acknowledging it had received the bid. The proposal is subject to approval from the nine-seat WNR board, which currently holds three NTI directors, including the chairman. Planned actions from Northern Tier include enlisting independent advisors to evaluate the proposal but did not guarantee any definitive agreements. Shares of NTI closed approximately 8% above its opening price for October 26, 2015.

Tudor, Pickering & Holt believed the deal was “negative at first glance,” adding that the benefits outlined by Western Refining did not offer any incremental synergies.

Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.